>But was Fed policy consistently tight over this period? I thought the Fed
>started easing rates in 95, after the Mexican bailout. The easing pattern
>continued, didn't it, even through the cuts of 1998 in the face of the Asian
>crisis? This pattern of cuts--three consecutive cuts beginning in Jan. of
>95--started quite a bit before we were showing surpluses.
>
>That would not negate the importance of AG's suspicion of NAIRU in helping
>the bubble liftoff. His irrational exuberance schpiel aside, though, he also
>seems at moments to really be interested in sustaining the market as an end
>in itself, no matter what the imbalances.
According to my late friend John Liscio, a JP Morgan economist told him that Greenspan was seriously worried about the risks of deflation starting around 1996, and rejected calls from Wall Street and within the Fed to tighten. Morgan used to be known as the "second Fed," so close it was to the real thing, and Greenspan himself served on the Morgan board before ascending to the Fed chair, so this would have to be considered a leak with an excellent pedigree.
Doug